The Convention Hotel’s Promised Occupancy Rates Are Suspect
A 2013 consultant’s report on the proposed convention hotel has some pretty rosy projections that are likely unrealistic. We have to rely on the 2013 report because the city is not releasing any of the data specific to this proposal. Readers of The Pitch may recall that developer/attorney Mike Burke said he did not want the Show-Me Institute to see the reports at all. As a result, we must look at the consultant's previous work for an indication of its reliability. This is all because the city is not transparent in its dealings.
Now we know why.
The report, which is labeled a "summary of findings" (no word yet on whether the city will produce the full findings) is dated February 21, 2013—two and a half years ago. It considered a 1,000-room hotel, not the 800-room hotel we're dealing with today. That caveat aside, it makes claims about potential Kansas City convention business that are sanguine, to say the least.
Let's dig in to the report, available at the link below. Figure 1-2, on page 6, is labeled, "Primary Competitors – Operating Performance," and it lists three hotels. Only one of them is downtown— the Marriott—and it gets 45% of its business from conventions. (The other two hotels are in Crown Center and get only 10% of their business from conventions.) The Marriott's occupancy rates for 2010, 2011, and 2012 are 51%, 51% and 53% respectively.
Just below, in Figure 1-3, are listed the "Secondary Competitors." Two of them, the Crown Plaza and the Holiday Inn, are downtown and get at least a quarter of their business from conventions (25% and 40% respectively). Their occupancy rates for 2010 through 2012 average around 55%. In other words, the downtown hotel business in Kansas City is awful. The national average occupancy rate for all hotels is around 64%, and the report says the rate in Kansas City hovers around 60% (Figure 1-1).
According to documents previously released by the City, the expectation is that the convention hotel, which will go downtown, will have an occupancy rate of 68%. That’s quite a jump.
Basically, proponents of a new 800-room downtown convention hotel are arguing that by increasing supply, demand will jump. Is it really reasonable to believe that this hotel will beat the downtown hotel average by nearly 20 points? Perhaps more importantly, is it reasonable to believe that it would do so without cannibalizing existing (and depressed) hotel traffic? We think not. How many members of the previous City Council, who hurried to approve this project, had been shown this report and understood its implications?
It would be wonderful if a private builder wanted to take on this project—and all its risks—with his or her own money. But that hasn’t happened, so Kansas City taxpayers are being asked to foot a large portion of the bill. Given what we are starting to learn about the project, we can understand why no private hotelier will touch this; and why taxpayers should be just as hesitant.